The Economics of Human Gene Patents
by F. M. Scherer
Academic Medicine, vol. 77 (December 2002, Part 2), pp. 1348-1367.
Patents on human genes have been controversial for ethical reasons, and also because they often cover basic research tools. Their broad scope raises important economic issues about how such patents may affect downstream research using such tools. This paper is part of a larger symposium on the legal and economic implications of human gene patents. It reviews the broad economic issues prominent in the debate over gene patents and provides new evidence on gene patenting and the various groups likely to make and utilize genome discoveries.
The paper begins by examining the logic of granting patents and its special implications for pharmaceutical innovation. A key consideration is the fact that large expenditures are required to take molecules from the discovery stage through clinical testing and regulatory agency approval. Few are willing to make such an investment if the final product will not be protected by a patent. As research by the Committee on Government Patent Policy during the 1960s revealed, when U.S. authorities ruled that molecules discovered under federal grants could not receive secure patent protection, pharmaceutical companies abruptly ceased pre-clinical screening of such molecules. This finding was one foundation for the subsequent passage of the Bayh-Dole Act in 1980, which allowed universities to obtain patents based on Federally-funded research.
Needless to say, biotech companies financed initially by venture capital play a prominent role here beginning in the 1980s. Privately-funded basic research expenditures in biotech are estimated to have been nearly as large as basic research spending in academic laboratories–a marked departure from the standard pattern in other fields, where private firms invest little in research on basic science.
The paper analyzes evidence from a survey of 1,770 U.S. patents from the years 1998-2001 whose abstracts contained the terms "DNA" plus "sequence," or "nucleic acid" plus sequence. Thirty-five percent were of foreign origin—a smaller fraction than foreign patents generally. Of the 1,150 U.S.-origin patents, 414 were primarily for human uses. Others covered methods of use, microorganisms useful in industrial and other processes, plant DNA, and animal DNA. The human-use patents included sequenced proteins, diagnostic methods, vaccines and the like, gene therapies, and other methods of treatment. The holders of the U.S.-origin human-use patents were, in declining order of frequency, universities, private companies with securities traded over-the-counter, other non-profit institutional laboratories, companies without traded securities, foreign-owned companies with U.S. laboratories, and companies included on the Fortune 1000 list. OTC companies led the list of human gene sequence patents. Thirty-four percent of the human-use patents originated in for-profit enterprises whose R&D decisions were most likely to be sensitive to whether or not patent protection was available.
Patents on human gene sequences are unlikely to be of economic value without further development, for example, into sequenced proteins and eventually into approved therapies. Because many gene sequence patents actually cover methods for conducting research rather than final products, multiple discoveries, possibly covered by multiple patents owned by a diversity of entities, must converge before a final product can be commercialized. This in turn poses two classic economic problems: bargaining over licenses may fail, resulting in insufficient licensing, or patentees may charge royalty rates that are higher than would be socially optimal. Both possibilities could lead to excessively high prices for the final products. One possible solution to this problem would be for gene patent claims to be construed more narrowly—for example, covering only narrow uses defined in advance. When disputes threatening the availability of new therapeutic modalities arise, compulsory licensing at reasonable royalties offers another potential remedy.
